Accounting/Tax/Regulation

ARRC Comment Letter On The Proposed Tax Relief Guidance Released By Treasury and the Internal Revenue Service

March 24, 2020
The ARRC sent a letter to the U.S. Treasury Department and the Internal Revenue Service about the proposed regulations regarding guidance on the IBOR transition. The letter describes the proposed regulations as “comprehensive” and “addressing most of the concerns raised by the ARRC in a manner that gives significant flexibility to taxpayers seeking to transition away from IBORs.” In the letter, the ARRC provided a number of recommendations intended to facilitate market participants’ ability to rely on the proposed regulations as they act to transition legacy IBOR contracts.

Memorandum regarding "Capital and Liquidity Regulatory Considerations in the Context of a Transition from Interbank Offered Rates to Alternative Risk-Free Rate Benchmarks"

November 2, 2020
The ARRC released a memorandum to the Federal Reserve, FDIC and OCC summarizing its preliminary findings and recommendations regarding potential regulatory considerations associated with the application of current and anticipated capital and liquidity requirements in the context of the market transition from the use of interbank offered rates to alternative risk-free rate benchmarks. The memorandum describes the capital and liquidity considerations the ARRC has identified thus far, including preliminary assessments as to whether the ARRC should approach regulators to request clarifying guidance regarding the capital and liquidity rules to facilitate this transition, and may be updated from time to time to reflect newly identified considerations and revise previously identified topics as the path and impact of the transition evolve.

Confirming Letter on Accounting Considerations for Embedded Derivatives

June 3, 2020
The Chair of the ARRC's Accounting and Tax Working Group released a letter to the Securities and Exchange Commission (SEC) which confirmed that they do not object to the Alternative Reference Rate Committee's Accounting and Tax Subgroup's conclusions that the SOFR interest rate reset features evaluated in the letter are terms of the host contract and do not represent embedded derivatives that require further assessment for bifurcation under ASC 815 based on the specific facts and circumstances described in the ARRC's letter dated April 20.

Letter Requesting IRS and Treasury Guidance Regarding Financial Contract Discount Rate Transition

September 4, 2020
The ARRC submitted a request for guidance concerning the transition to SOFR discounting with respect to a vast number of existing financial contracts that currently use the effective federal funds rate as the discount rate. This transition is a critical step in the ARRC's Paced Transition Plan, and the ARRC plans to request that Treasury and IRS expand the IBOR transition guidance to cover such discounting transition.

Request for Modification of CFTC IBOR No-Action Relief

July 23, 2020
The ARRC filed a letter with the CFTC's Division of Clearing and Risk (DCR), Division of Market Oversight (DMO), and Division of Swap Dealer and Intermediary Oversight (DSIO) requesting modifications to the existing IBOR no-action relief previously granted by such divisions in CFTC Letters 19-26, 19-27 and 19-28. These requests are summarized in an issues list (the ARRC Issues List) submitted along with the letter.

While the ARRC believes the existing no-action letters address many of the regulatory issues in the transition, certain modifications have been requested to further ensure a smooth and orderly transition away from LIBOR and other IBORs. One of these requests for DCR—regarding the rates covered by the DCR no-action letter—is an important clarification required for the ISDA 2020 IBOR Fallbacks Protocol, which will facilitate the amendment of swaps to include "Fallback Amendments."

The ARRC previously submitted a letter requesting that DSIO modify its relief to address the implications of certain discount rate changes at derivatives clearing organizations, as well as amendments to credit support annexes. The ARRC continues to request these modifications, which are reiterated in the ARRC Issues List.

Letter to the SEC on Accounting Considerations for Embedded Derivatives

April 24, 2020
The Chair of the ARRC's Accounting and Tax Working Group sent a letter to the Securities and Exchange Commission (SEC) regarding accounting issues associated with certain embedded derivatives in connection with the transition to SOFR. The letter was accompanied by an appendix.

Comment Letter on the Notice of Proposed Rulemaking Regarding Margin and Capital Requirements for Covered Swap Entities

December 11, 2019
The ARRC released a comment letter to the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Reserve Deposit Insurance Corporation, the Farm Credit Administration, and the Federal Housing Finance Agency (together, the "Agencies") in response to the Agencies' notice of proposed rulemaking regarding margin and capital requirements for covered swap entities. Consistent with the ARRC's mandate, the ARRC's comment letter focuses on the provisions of the proposed rule designed to facilitate an orderly transition away from interbank offered rates. The ARRC released a supplemental comment letter on February 13, 2020 that addresses swaption transactions.

Letter Requesting IRS and Treasury Guidance Regarding Anticipated ISDA Protocol Relating to IBOR Fallback Provisions

December 11, 2019
The chair of the ARRC's Tax Subgroup released a letter requesting IRS and Treasury guidance regarding the anticipated International Swaps and Derivatives Association Protocol relating to Interbank Offered Rate ("IBOR") fallback provisions. Subsequently, the ARRC's Tax Subgroup counsel submitted a follow-up letter to the IRS and Treasury on December 20, 2019, to provide examples of bilateral amendments and to highlight additional issues that should be considered in the interim guidance relating to the Protocol. The Subgroup also submitted an additional follow-up letter on January 30, 2020.

Letter on SEC Feedback about Relief on Preferred Shares

December 6, 2019
The Chair of the ARRC's Accounting and Tax Working Group released a letter to the Securities and Exchange Commission (SEC) that sets out the ARRC's understanding that the SEC staff does not object to the conclusions that certain amendments to preferred shares would be accounted for as a modification, rather than an extinguishment, and that such a modification would not result in the recognition of an exchange of value.

Follow-up Letter to the Commodity Futures Trading Commission

November 6, 2019
The ARRC released a letter to the Commodity Futures Trading Commission regarding regulatory issues associated with the transition of derivatives contracts from interbank offered rates to alternative risk-free benchmarks. The letter updates and consolidates earlier letters from the ARRC to the CFTC requesting regulatory clarification on the same subject.

Letter Providing Feedback on FASB's Exposure Draft

October 8, 2019
The ARRC, in conjunction with Securities Industry and Financial Markets Association (SIFMA), submitted a comment letter in response to Financial Accounting Standards Board's (FASB) Exposure Draft on reference rate reform. The letter is also available here.

Letter Requesting Clarification on the Treatment of Preferred Stock Instruments

August 15, 2019
The ARRC released a letter to the U.S. Securities and Exchange Commission (SEC) requesting confirmation that preferred stock instruments that reference LIBOR qualify for the same relief that the Financial Accounting Standards Board (FASB) has proposed for other contracts referencing interbank offer rates (IBORs), including LIBOR.

Proposed Guidance on Tax Issues

June 6, 2019
Following the ARRC's letter to the U.S. Treasury requesting guidance on tax issues that arise as a result of the market transition from LIBOR and other Interbank Offered Rates, the ARRC submitted these documents to the U.S. Treasury with proposals to further address some of the tax concerns highlighted in the letter.

Follow-Up Letter to U.S. Regulators

May 16, 2019
The ARRC released a follow-up to its July 2018 letter to U.S. regulators regarding regulatory issues associated with the transition of derivatives contracts from interbank offered rates to alternative risk-free benchmarks. The follow-up letter responds to regulators’ requests by describing different models market participants may use to effect the transition, and also requests that new derivatives linked to SOFR and other alternative rates that are not subject to mandatory clearing be exempt from initial margin requirements for a limited amount of time in order to build liquidity in the market. Note that while the letter published here is addressed to the CFTC, identical letters were sent to all of the U.S. regulatory addressees with only the addressee and regulator name changed.

Tax Issues Letter

April 11, 2019
The ARRC released a letter requesting guidance on tax issues that arise as a result of the market transition from LIBOR and other Interbank Offered Rates to alternative risk-free rate benchmarks.

Title VII Letter

July 16, 2018
The ARRC released a letter requesting inter-agency guidance regarding the treatment of derivatives contracts referencing alternative risk-free rate benchmarks and associated transitions from interbank offered rates under the Title VII of the Dodd-Frank Act and associated regulations.